ProcurementLawandPolicyInsights

Although the Freedom of Information Act (FOIA) allows citizens to request agency records and thus keep a close eye on their government, proprietary information is exempt from disclosure under Exemption 4, which protects “trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential.” A substantial body of case law has developed regarding what does and does not qualify as proprietary, and therefore exempt, under FOIA. For example, the total price paid under a government contract is rarely exempt, but a contractor’s line-item pricing often can be. However, there is no per se rule that line-item pricing is exempt from release under FOIA. Instead, contractors must show on a case-by-case basis that the disclosure of the line-item pricing would cause competitive harm.

On September 28, 2018, the D.C. District Court issued two noteworthy decisions holding that line-item pricing data and commission rates were exempt from release under FOIA Exemption 4. Northrop Grumman Systems Corp. v. NASA, No. 17-1902, 2018 WL 4681012 (D.D.C. Sept. 28, 2018); Hodes v. Treasury, No. 17-0219 (D.D.C. issued Sept. 28, 2018). Although these decisions do not break new ground, they are nonetheless significant as the latest examples of a court preventing the disclosure of pricing information. They suggest that courts are willing to apply a broad definition of confidential commercial or financial information where the contractor makes the necessary showing. They also reject common agency arguments for disclosing pricing information, such as the information is too old or not final. Thus, these opinions provide useful authority in defending against the public release of contractor pricing information.

SUMMARY OF RECENT DECISIONS

First, in Northrop Grumman Systems Corp. v. NASA, the court held that line-item pricing information, including prospective rates over 10 years old, were protected by Exemption 4 based on Northrop Grumman’s showing of competitive harm. 2018 WL 4681012, at *8. In that case, Northrop Grumman filed a “reverse FOIA” action after NASA initially decided to disclose proposed “wrap rates” from a NASA contract in effect from 2002 to 2009. NASA argued that Exemption 4 did not apply to these rates because (1) the pricing data was nearly a decade old; (2) there were no follow-on contract to which these rates might apply; and (3) the rates were prospective rates and not actual rates. Id. at *3. As a result, according to NASA, the disclosure of Northrop Grumman’s rates would not influence future procurements or competitively disadvantage Northrop Grumman.

The court rejected each of NASA’s arguments, focusing in part on the declarations of Northrop Grumman’s employees about competitive harm. In siding with the contractor, the court discussed the flaws in each of NASA’s arguments. In particular, the court noted that the proposed wrap rates are not unconnected from actual rates, and explained how Northrop Grumman calculated these rates. It also explained that the rates themselves are proprietary as “a potentially valuable tool for a competitor who is seeking to calculate Northrop Grumman’s future bids.” Id. at *6. Significantly, the court accepted Northrop Grumman’s detailed assertions that this information was still relevant (and not stale) and shifted the burden to NASA to “offer [a] reasoned basis for rejecting the company’s representations.” Id. at *7. In sum, even old prospective pricing data can be protected under FOIA Exemption 4 provided that the contractor details how the information can still be used today to its competitive disadvantage.

Second, in Hodes v. Treasury, the court protected the amount of commissions to be paid under an IRS debt collection contract, analogizing the commission percentages to line-item pricing. No. 17-0219, at 1. There, Hodes — the party submitting the FOIA request — went to court to compel the IRS to release pricing information from four IRS debt collection contracts, specifically the commission percentages to be paid to the contractors. At the heart of the case, the parties disputed the characterization of these commission percentages. The IRS argued they were akin to “line-item pricing,” and supplied declarations from each of the four contractors stating that competitors could use this information to undercut them on future bids. On the other hand, Hodes argued that the percentages were essentially the total price and disclosure was necessary to allow the public meaningful oversight.

The court agreed with the IRS and declared that the commission percentages were protected by Exemption 4 in part because such rates would enable competitors to gain insight into future competitive bidding opportunities. Id. at 12. Citing the contractors’ declarations, the court determined that competitors could use the commission rates data to construct their own pricing bids. The court also went a step further and concluded that disclosing the commission percentages would impair the IRS’s ability to get necessary contractor information in the future because it could lead new bidders to draw misleading inferences about their competitors’ pricing approach, and to bid unrealistically low commissions as a result. Id. at 13.

KEY TAKEAWAYS

These decisions underscore that Exemption 4 can be used to protect line-item pricing and similar types of pricing information where the release of such information is likely to competitive harm its owner and negatively impact competitive procurements. That remains true even where the information is a number of years old; is prospective in nature; is not directly linked to a future procurement; or bears a label other than “line-item price.” So contractors should not shy away from challenging an agency’s attempt to release information that could cause competitive harm.

Contractors must, however, be prepared to provide evidence to establish that release of the identified information is, in fact, likely to cause a substantial competitive harm. Contractors should not rely on merely asserting this position, but should instead provide one or more declarations from business personnel detailing the competitive landscape in the industry and how competitors can use the information on future competitions.